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Informal and Formal Investment Sources of Equity Capital

Identify informal and formal investment sources of equity capital. Discuss how venture capital investors make decisions.

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Informal sources of equity capital includes friends and relatives that provide the necessary equity capital for businesses. The formal sources of equity capital includes the capital markets, private equity funds/ venture capital funds or other strategic investors.

Venture capitalists consistently emphasize the importance of the management team in an entrepreneurial venture and focus much of their due diligence on the key people involved. They assert that a good idea is only executable when implemented by a top-notch executive team. Personal introductions are the best way to give your plan a chance. Use your network to find mutual acquaintances. Introductions give both sides an immediate reference point and raise your request above the incoming noise.

The following questions are among those most likely to be asked. (Source: Rainmaker Capital Group)

What type of business experience does the management team have?
Are the members achievers?
What motivates each team member?
Can the team accomplish the job outlined in the business plan?
How does your company and product fit into the industry?
What are the current market trends?
What are the keys to ...

Solution Summary

Identify informal and formal investment sources of equity capital. Discuss how venture capital investors make decisions.

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